Turning Japanese?

Is Abenomics working?

Almost one year ago, Abenomics surfaced in Japan. Last November Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda unveiled a strategy of monetary reflation, fiscal stimulus, and structural reforms aimed at ending deflation and reinvigorating a sclerotic economy. How’s it going?

The strength of the recovery in the first half of the year has been striking. The stock market is up 41% in Yen terms year-to-date, and the Yen has fallen 26% from its level a year ago. GDP growth reached an annualized rate of almost 4% in the first half of the year. Year-over-year inflation turned positive in June, lifted by energy and import prices. But core prices continue to fall.

The government plans to increase the VAT—or consumption tax—from 5% to 8% in 2014 and to 10% in 2015. That will show that the they are serious about tackling its debt—but it could also undo the stimulative effect of the lower yen. Far better would be an increased estate tax—taxing holders of government debt to pay down government debt.

A year ago Japan was entering its third recession in five years. The road ahead is bumpy, but Abenomics just may turn Japan’s economy around.

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Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. -
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